The Boston Beer Company, Inc. (NYSE:SAM) Q1 2024 Earnings Call Transcript

The Boston Beer Company, Inc. (NYSE:SAM) Q1 2024 Earnings Call Transcript April 25, 2024

The Boston Beer Company, Inc. beats earnings expectations. Reported EPS is $1.04, expectations were $0.08. The Boston Beer Company, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Boston Beer Company First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin.

Michael Andrews: Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2024 first quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Michael Spillane, our CEO; and Diego Reynoso, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. I will now pass it over to Jim for some introductory comments.

James Koch: Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Michael, who will provide an overview of our business. Michael will then turn the call over to Diego who will focus on the financial details of our first quarter results, as well as our outlook for the remainder of 2024. Immediately following Diego's comments, we will open the line for questions. We were pleased to see flat depletions in the first quarter and to deliver revenue growth. Twisted Tea continues its strong momentum, and we continue to make steady progress on our margin enhancement initiatives. Our strategy to return to long-term sustainable growth through investing in our powerful brands and continuing to innovate in Beyond Beer remains unchanged.

The cash-generated nature of our business and our strong balance sheet supported our repurchase of $65 million in stock thus far in 2024. I'd like to thank our Boston Beer company team, distributors and retailers for their support in a solid start to the year. And I'm delighted to have on the call today Michael Spillane, who formally joined as our CEO earlier this month. Michael's strong operational experience in consumer products and his long history with our company make him the ideal choice to continue the implementation of our strategy to return to long-term growth. I'd also like to take this opportunity to thank David Burwick for his 19-years of excellent contributions to Boston Beer and his assistance to Michael in the transition. I will now pass the call over to Michael.

Michael Spillane: Thanks, Jim, and good afternoon, everyone. I'm excited to join Boston Beer as President and CEO after serving as a Board Member for eight years. I spent my first few weeks meeting with our team, our distributors, and visiting the breweries, which has reinforced my conviction and the opportunities that lie ahead for the company. Boston Beer has powerful brand equities, the best sales force in beer, and a strong team with a unique entrepreneurial culture. The cast generation of this business is powerful and allows us the optionality to invest in our brands and long-term innovation. We remain focused on implementing our strategy to deliver long-term sustainable growth and improve our operational efficiency while being disciplined stewards of capital.

Our highest priority as a company is to return to delivering sustainable volume growth. This involves protecting and nurturing our core brands so that they may reach their full potential while continuing to drive innovation in Beyond Beer, which we expect to drive category growth. In our core brands, we're highly focused on providing the appropriate levels of marketing spend on both working media to drive awareness and attract new customers, as well as in-store at the point of sale to drive conversion. Working with our distributors and retailers, will continue to focus on maintaining strong service levels and ensuring we recapture and recapture the share of shelf that our core brands deserve. Finally, we'll continue to innovate on our core brands and we'll be fine-tuning our product roadmap to manage innovation and line extensions in a disciplined area.

Within our core brands, Twisted Tea's momentum continues with dollar sales up 21% in the first quarter while growing share by 1.4 points in measured channels. We continue to increase distribution while maintaining strong sales per point and achieved additional space in the spring shelf resets. Twisted Tea is the original hard-tea brand with strong brand awareness and loyalty and we intend to invest appropriately to maintain the number one share position with strong growth. Twisted Tea Light continues to be highly incremental and we're encouraged by the early results and test markets of our higher ABV Twisted Tea Extreme. We remain focused on stabilizing Truly and have seen sequential improvement in our lighter flavor variety backs and single-serve packages.

However, the hard-seltzer category remains under pressure in 2024 and we continue to expect category volume declines in the low teens. Truly is now a smaller part of our business mix with Twisted strong growth but remains a 20% share of hard-seltzer in measured channels and we're working diligently to improve its trajectory. Across our other core brands, Sam Adams, Angry Orchard and Dogfish Head, we see areas of opportunity and remain focused on nurturing these brands which remain an important part of our portfolio and the company's craft legacy. We introduced the new Sam Adams packaging late in the first quarter and will continue to invest in Boston Lager, Seasonals and new innovation as well as our non-alcohol offerings. Sam Adams' non-alcoholic grew 52% in dollars in the first quarter in measured channels.

In addition to supporting our core brands, we'll continue to focus on long-term product innovation to plant seeds for future growth. Our goal is to generate a steady cadence of brand innovation which will test in smaller markets to determine the winners and move forward to national launches. Our 2024 innovations in the early stages of rollout will have more significant impact in the second half of the year. Sun Cruiser, a vodka-based tea is in its early stages of on-shelf availability and thus far has been well received by distributors and retailers. Hard Mountain Dew has begun to transition to our network and positions us well to expand the reach and consumption of Hard Dew as we eventually will achieve national distribution. Today we are reiterating our 2024 volume guidance of down low single digits or up low single digits.

While the first quarter is a solid start to the year, it's a smaller quarter and our key selling season remains ahead of us. In my first few months at the company, I will continue to focus on further refining our product roadmap and innovation process. I believe we have the right teams, infrastructure, and strategies in place to return to long-term volume growth. I'm excited to work with the team, our distributors and retailers to deliver on our objectives and look forward to meeting investors and analysts in the month ahead. I'll now pass the call over to Diego to review our first quarter results and 2024 guidance.

Diego Reynoso: Thank you, Michael. Good afternoon, everyone. Depletions in the first quarter were flat and shipments increased 0.9% from the prior year, primarily due to the growth in Twisted Tea offset by declines in Truly Hard Seltzer and our other brands. Shipments were higher than depletions as distributors built inventories to support our peak selling season and we shipped some additional product to support the implementation of our new automated customer ordering and inventory management system. We believe this system, along with other improvements in our supply and share process, will help us further reduce waste and optimize our network. We believe distributor inventories as of March 30, 2024 was at an appropriate level for each of our brands and average approximately 4.5 weeks on hand compared to four weeks on hand at the end of the fourth quarter of 2023 and mirroring the 4.5 weeks at the end of the first quarter of 2023.

Revenue for the quarter increased 3.9% due to volume increases, pricing and lower returns. Our underlying pricing for the first quarter was consistent with our full year guidance range with additional benefits from the lower returns. Please note that we do not expect the benefits from their returns in the first quarter to continue in the balance of the year. Our first quarter gross margin of 43.7% increased 570 basis points year-over-year on a reported basis. Gross margin was up 360 basis points year-over-year, excluding one-time in the prior year quarter related to a Truly Hard Seltzer rebrand and the non-recurrent payment to a third-party contract brewer. The underlying gross margin expansion in the quarter was primarily related to pricing, including a benefit from lower returns, procurement savings and improved brewery performance on higher volumes, which was somewhat offset by inflationary costs.

Excluding shortfall fees and third-party production prepayments, which we've discussed in prior calls, our gross margin was 44.9%. Advertising promotional and selling expenses for the first quarter of 2024 decreased $5.2 million or 4.1%. From the first quarter of 2023, due to lower freight costs, it's a result of both lower rates and efficiencies. Within brand investment, we increased our media spend, which was more than offset by declines in other promotional spending. General administrative expenses increased $6.7 million or 15.3% year-over-year, primarily due to higher salaries and benefits costs, which includes Chief Executive Officer transition costs that were fully expensed in the first quarter, partially offset by decreased consulting costs.

We reported EPS of $1.04 per diluted share compared to a net loss of $0.73 per diluted share in the first quarter of 2023. The year-over-year improvement was driven by higher revenue and higher gross margins. Our tax rate of 33.0% in the first quarter was higher than our plan rate, which was driven by non-deductible compensation expense related to the CEO transition costs. Now I'll discuss our 2024 guidance. Our fiscal week depletion trends for the first 16 weeks of 2024 have decreased 2% from 2023. We are reiterating our 2024 volume and EPS guidance from our February 12, and updating our full-year tax guidance to 28.5% due to an increase in estimated non-deductible compensation expenses related to our CEO transition costs. We continue to expect 2024 depletions and shipments to range between a decrease of low single digits to an increase of low single digits.

We expect price increases between 1% and 2%. Full-year 2024 reported gross margins are expected to be between 43% and 45%. We expect commodity inflation in 2024, but at a lower rate than 2023, primarily driven by sweeteners and flavorings. We continue to expect to cover commodity inflation dollars with pricing, but do expect some additional margin headwinds from higher labor costs in our breweries. Where we land within the range of our guidance will be somewhat dependent on the mix of products sold. The contractual shortfall fees and production prepayments amortizations that we've discussed in our last call are expected to have a lower negative impact on full year 2024, reducing from 175 to 225 basis points to 135 to 185 basis points due to changes in the timing of our production prepayment amortization.

As these contractual terms expire, we will reassess our capacity needs and commitments with our third-party production partners. Our investments in advertising promotional and selling expenses are expected to range from a decrease of $5 million to an increase of $15 million. This does not include any changes in freight costs for the shipments of our products to our distributors. We are currently targeting full-year 2024 earnings per diluted share of between $7 and $11. This projection is highly sensitive to changes in volume projections, mix of owned versus partner brands, supply chain performance, and inflationary impacts on consumer spending. As you model out the year, please keep in mind that our revenue performance is impacted by seasonal volume changes in timing of shipments.

During the first quarter, shipment trends were above the depletions trends and were currently estimated that they will rebalance result in the shipments' trends being lower than the depletions trends in the second quarter. Also, please note that the fourth quarter is typically our lowest absolute growth margin of the year. Turning to capital allocation, we ended the quarter with a cash balance of $205.4 million and an unused credit line of $150 million, which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to our shareholders to our share buy-by program. For the full year of 2024, we expect capital expenditures of between $90 million and $110 million. These investments will be primarily related to our own breweries to build capabilities and improve efficiencies.

During the 13-week period ending March 30, 2024, and the period from April 1, 2024 through April 19, 2024, we repurchased shares in the amount of $50 million and $15 million. As of April 19, 2024, we had approximately $200 million remaining on the $1.2 billion share repurchase authorization. This concludes our prepared remarks, and now we will open the line for questions.

Operator: [Operator Instructions] And our first question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

See also

30 Most Visited Websites in the World So Far in 2024 and

30 Largest Software Companies in the World by Market Cap.

To continue reading the Q&A session, please click here.